NOTE C—DEBT

Warren elected to not make the approximately $7.5 million interest payment due February 1, 2016 on its Senior Notes. The applicable 30-day grace period for such interest payment has expired, and consequently an event of default under the indenture governing such notes has occurred and is continuing. This status gives the Indenture trustee and the holders of not less than 25% in aggregate principal amount of the Senior Notes the right to declare the entire principal amount of the Senior Notes plus accrued and unpaid interest due and payable. In addition, this status has resulted in events of default under Warren's first lien credit facility and its second lien credit facility, entitling the administrative agents and lead lenders thereunder to declare all obligations under those credit facilities to be immediately due and payable. Consequently, the following long-term liabilities are due and payable on demand and are considered to be current. However, thus far, no such acceleration of Warren's debt obligations has occurred. Nevertheless, these debt instruments are now reclassified from long-term liabilities to current liabilities.

Current maturing long-term debt consisted of the following for the balance sheets dated:

	December 31, 2015			December 31, 2014
	(in thousands)
Line of Credit	$	—		$	134,749
First Lien Credit Facility		234,665			—
Second Lien Credit Facility		74,912			—
Convertible Debentures		1,636			1,636
Senior Notes		167,265			300,000
Discount on Senior Notes		(1,898	)		(3,947	)

		476,580			432,438
Less current portion		(476,580	)		(382	)

Long-term portion	$	—		$	432,056

First Lien Credit Facility and Senior Notes Exchange

On May 22, 2015, Warren Resources entered into a first lien credit agreement by and among the Company, Wilmington Trust, National Association, as Administrative Agent, and the lenders from time to time party thereto, that provides for a five-year, $250 million term loan facility (the "First Lien Credit Facility") which matures on May 22, 2020. At the closing of the First Lien Credit Facility, certain of the first lien lenders extended credit in the form of new term loans in the amount of $172.5 million and in the form of commitments for delayed draw term loans for up to an additional $30 million, subject to certain incurrence tests. Approximately $47 million in additional term loans were issued under the First Lien Credit Facility at closing in exchange for $69.59 million in face value of the 9.000% Senior Notes due 2022, as described further under "9.000% Senior Notes due 2022 "below.

The conditions applicable to further draw downs under the First Lien Credit Facility were modified as part of the First Amendment to the First Lien Credit Facility that was entered into on October 22, 2015. The First Lien Credit Facility is guaranteed by Warren Resources of California, Inc., Warren E&P, Inc. and Warren Marcellus LLC, which are three of the Company's wholly-owned subsidiaries and is collateralized by substantially all of Warren's assets, including the equity interests of the guarantors. Warren used the proceeds drawn at closing of the First Lien Credit Facility to repay the balance on its former credit facility, and has been released from all legal obligations on such former facility. The Company accounted for this Exchange transaction in accordance with ASC 470 and ASC 405 and as a result recognized a gain on the retirement of debt in the amount of $14.4 million during 2015.

The First Lien Credit Facility is subject to prepayment in respect of asset sales, subject to limited reinvestment rights and certain excluded asset sales. The First Lien Credit Facility also includes certain covenants, including a maintance covenant requiring the Company to maintain a minimum consolidated first lien leverage ratio. The terms of the maintenance covenant were modified as part of the First Amendment to the First Lien Credit Facility that was entered into on October 22, 2015.

The First Lien Credit Facility is subject to other usual and customary conditions, representations, and warranties, including restrictions on certain additional indebtedness, dividends to shareholders, liens, investments, mergers, acquisitions, asset dispositions, repurchase or redemption of our common stock, speculative commodity transactions, transactions with affiliates and other matters. The First Lien Credit Facility is subject to customary events of default. If an event of default occurs and is continuing, the Agent may, or at the request of certain required lenders shall, accelerate amounts due under the First Lien Credit Facility (except for a bankruptcy event of default, in which case such amounts will automatically, by their terms, become due and payable).

The annual interest rate on borrowings under the First Lien Credit Facility is 8.5% plus LIBOR for the applicable LIBOR period (with a minimum LIBOR rate of 1%) and is payable quarterly in arrears on the next to last business day of each March, June, September and December. At December 31, 2015 the interest rate is 9.5%.

As of November 9, 2015, $15 million of additional borrowings have been drawn depleting the total available under the facility, resulting in a balance of $234.7 million outstanding at December 31, 2015.

Second Lien Credit Facility and Senior Note Exchange

On October 22, 2015, the Company entered into a second lien credit facility (the "Second Lien Credit Facility") by and among the Company, Cortland Capital Market Services, LLC, as Administrative Agent, and the lenders from time to to time party thereto. The Second Lien Credit Facility provides for a five-year, approximately $51.0 million term loan facility that matures on November 1, 2020. At closing, certain of the lenders exchanged approximately $63.1 million in face value of previously-issued Senior Notes held by them, plus accrued interest, for (i) approximately $40.1 million of second lien term loans under the Second Lien Facility, and (ii) four million (4,000,000) shares of Company Common Stock and, in addition, extended credit in the form of new second lien term loans in the amount of approximately $11.0 million. The annual interest rate on borrowings under the Second Lien Facility is 12%, with interest payable semi-annually in arrears on each April 20 and October 20. On the first three semi-annual interest payment dates, beginning with April 20, 2016, the Company may elect to pay up to all of such interest (6% per semi-annual period) by capitalizing accrued and unpaid interest and adding the same to the principal amount of the second lien loans then outstanding. For the subsequent three semi-annual interest payment dates, beginning with October 20, 2017 and ending October 20, 2018, the Company may elect to pay up to one quarter of such interest (1.5% per semi-annual period) by capitalizing accrued and unpaid interest and adding the same to the principal amount of the Second Lien Loans then outstanding. The amount of accrued unpaid potential "PIK" interest outstanding on the Second Lien Credit facility at December 31, 2015 is $1.2 million.

The transaction was accounted for as a troubled debt restructuring in accordance with ASC 470, whereby no gain on the retirement of debt was recognized and a premium on the issuance equal to the amount of debt retired will be amortized over the life of the instrument. The value of the Second Lien Credit Facility premium at December 31, 2015 was $22.7 million. The total outstanding balance at December 31, 2015 amounts to $74.9 million.

9.000% Senior Notes due 2022

To finance the Marcellus Asset Acquisition on August 11, 2014, the Company issued 9.000% senior notes in a private offering at a price equal to 98.617% for a total of $300 million due to mature on August 1, 2022 (the "Unregistered Senior Notes"). Interest is payable on the Unregistered Senior Notes semi-annually in arrears at a rate of 9.000% per annum on each February 1 and August 1.

In connection with the First Lien Credit Facility entered into on May 22, 2015, the Company exchanged $69.59 million in face value of the Unregistered Senior Notes previously held by the lenders under the First Lien Credit Facility for approximately $45.23 million of First Lien Term Loans plus accrued unpaid interest of $1.93 million rolled into the First Lien Term Loans as additional borrowing.

On July 27, 2015, substantially all of the outstanding Unregistered Senior Notes were exchanged for an equal principal amount of registered 9.000% Senior Notes due 2022 pursuant to a registration statement on Form S-4 that was declared effective by the Securities and Exchange Commission on June 19, 2015 under the Securities Act (the "Registered Senior Notes" and, together with the Unregistered Senior Notes, the "Senior Notes"). The Registered Senior Notes are identical to the Unregistered Senior Notes except that the Registered Senior Notes are registered under the Securities Act and do not have restrictions on transfer, registration rights or provisions for additional interest.

In connection with the Second Lien Credit Facility entered into on October 22, 2015, the Company exchanged $63.1 million in face value of Registered Senior Notes previously held by the lenders the Second Lien Credit Facility for approximately $40.1 million of Second Lien Term Loans.

We may redeem, at specified redemption prices, some or all of the Senior Notes at any time on or after August 1, 2017. We may also redeem up to 35% of the Senior Notes using the proceeds of certain equity offerings completed before August 1, 2017. If we sell certain of our assets or experience certain kinds of changes in control, we may be required to offer to purchase the Senior Notes from the holders. The Senior Notes are fully, unconditionally and jointly and severally guaranteed on a senior unsecured basis by certain of our existing subsidiaries and will be fully, unconditionally and jointly and severally guaranteed on a senior unsecured basis by our future domestic subsidiaries, subject to certain exceptions. Warren Resources, Inc. is a holding company with no independent assets or operations. Any subsidiaries of the Company other than the subsidiary guarantors are minor. There are no significant restrictions on the Company's ability, or the ability of any subsidiary guarantor, to obtain funds from its subsidiaries through dividends, loans, advances or otherwise. The total outstanding balance at December 31, 2015 amounted to $167.3 million.

The Company elected not to pay the semi-annual interest payment of $7.5 million due on February 1, 2016, although it had sufficient liquidity to make the interest payment in full. According to the agreement this failure to pay was not an immediate event of default, however, the 30-day grace period elapsed on March 2, 2016, creating an event of default. Under the indenture governing the Senior Notes, the trustee or holders of not less than 25% in aggregate principal amount of the Senior Notes outstanding may declare the principal amount of the Senior Notes plus accrued and unpaid interest to be due and payable. The failure to pay interest on the Senior Notes within the 30-day grace period has also resulted in events of default under Warren's first lien credit facility and second lien credit facility, which entitle the administrative agents and lead lenders thereunder to declare all obligations thereunder to be immediately due and payable. No such right has been exercised as of the filing of these financials.

Convertible Debentures

The Convertible Debentures may be converted from the date of issuance until maturity at 100% of principal amount into common stock of the Company at a price of $50.00 each. Conversion of the Debentures would increase the number of shares outstanding at December 31 as follows:

2015	Maturity date	Outstanding principal amount		Per share conversion price		Common shares if converted
	(in thousands, except share and per share amounts)
Secured Convertible 12% Debentures	December 31, 2020	$	835	$	50.00		16,700
Secured Convertible 12% Debentures	December 31, 2022		801		50.00		16,020

		$	1,636				32,720

Each year, holders of the Secured Convertible Debentures may tender to the Company up to 10% of the aggregate amount outstanding. As of December 31, 2015, the entire principal was reclassified as current and can be tendered by the secured holders due to the event of default that occurred as described above.